Federal budget hikes capital-gains tax on companies and wealthy individuals

The federal government is increasing capital gains taxes on wealthy individuals and companies, leaning on an affluent segment of the population to finance billions in new spending on housing and other government priorities.

The federal budget, released Tuesday, increases the inclusion rate on some capital gains. Businesses will now pay income tax on two-thirds of their capital gains earnings, up from one half. The increase will also apply to individuals, but only on capital gains earnings over $250,000.

The change comes into effect on June 25. Lawyers and accountants are expecting a flurry of activity in the coming months, as affected individuals and businesses try to sell assets and realize their capital gains before the new higher inclusion rate takes effect.

The tax measure is expected to net the government $19.3-billion over the next five years – $8.8-billion from individuals and $10.5-billion from companies – in a bid to offset roughly $53-billion in new spending. It’s by far the largest revenue measure in the budget and the first change to capital gains taxes in a quarter-century.

Finance Minister Chrystia Freeland described the measure as an attempt to lean against “structural inequality” and raise funds from wealthy individuals that could be funnelled toward middle class and younger Canadians. The government estimates that the change will impact around 40,000 individuals and 307,000 companies.